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Central Bank: No immediate threat of inflation rise from monetary expansion

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By Sanath Nanayakkare

Sri Lanka was currently experiencing high monetary expansion, but the Central Bank did not expect an acceleration of inflation in the near future, Economic Research Director at the Central Bank Dr. Chandranath Amarasekara told The Island yesterday.

Answering a query on the broad money growth and its wider implications, Dr. Amarasekera said, “At the end of 2020, broad money expanded by 23.4% compared to the end 2019. The extraordinary circumstances caused by the COVID-19 pandemic required increased credit to the government from Sri Lanka’s banking system, and the historically low interest rate structure also resulted in a pickup in the growth of credit to the private sector in the second half of the year. This policy driven expansion in broad money supply was essential for the country to dampen the effects of the economic downturn caused by the pandemic.”

“As the Sri Lankan economy is operating below its potential, we do not project a demand-driven acceleration in inflation in the near term. Even the relatively high economic growth projected for 2021 will be partly driven by the low base in the previous year, and therefore, it is unlikely that there will be an overheating of the economy in 2021 as well, although we envisage a monetary expansion of 21%.”

“However, as the authority responsible for the money stock of the country, the Central Bank remains cautious about any excessive expansion in money growth. Nevertheless, the close relationship between money and inflation that we used to see in the past is no longer in existence. For example, during the most part of a period of single digit inflation that Sri Lanka experienced since 2009, broad money growth has remained above 15%. The breakdown of the close relationship between money growth and inflation is also one reason for the Central Bank to move away from a monetary targeting framework towards a flexible inflation targeting framework to conduct monetary policy. Anchoring of inflation expectations has also helped curb the inflationary effects of exchange rate movements as well. Many other countries have also experienced similar situations.”

“When the economy recovers and demand conditions improve, the Central Bank will take appropriate action to make necessary policy adjustments to ensure the continuation of inflation at the desirable levels of mid-single digits without disrupting the growth process,” Dr. Amarasekara said.



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At least 17 killed after explosion in Peshawar mosque

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(picture from twitter)

BBC reported that at least 17 people have been killed in an explosion at a mosque in the Pakistani city of Peshawar.

The blast happened when the mosque was packed with worshippers and more than 90 people were injured.

A section of the building was destroyed, and officials say people are buried under the rubble. Several others are being taken to local hospitals.

The cause of the explosion is unclear.

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More heavy rain ahead for New Zealand’s largest city

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Auckland experienced an unprecedented amount of rainfall on Friday (picture BBC)

BBC reported that residents in flood-hit northern New Zealand are bracing for more heavy rains as officials issued severe weather alerts.

At least four people have died and a state of emergency was declared in Auckland, which on Friday experienced its worst downpour on record.

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Information Dept. media release: EC Chief asks public not to be misled

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by Priyan de Silva

Chairman of the Election Commission of Sri Lanka, Nimal Punchihewa, asked to comment on a special news release, purportedly issued by the Director General of the Department of Government Information, on Sunday (29), told  The Island  that preparations for the 09 March local government elections were going ahead, as planned, and that the media statement at issue was misleading.

The media statement says: “The gazette notice with signatures of the Chairman and other members of the Election Commission required for the commencement of the Local Government election process has not been sent to the Government Press for printing.”

Punchihewa requested the public not to be misled by any misinformation being spread in an attempt to create doubts in their minds.He also  reiterated that the EC would not be deterred by any acts of intimidation.

Three of the EC members have been threatened with death by an unidentified caller to resign from their posts. They are S. B. Divaratne, M. M. Mohamed and K. P. P. Pathirana. The Opposition has accused the government of trying to sabotage the LG polls.

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